One of the currencies rarely discussed here, or anywhere else for that matter, is Norwegian Krone. If memory serves correctly I wrote about only once when talking about safe haven currencies. And that was about half a year ago. It really should be no surprise. Krone represents small economy in a country of about 4.5 million inhabitants. NOK is not a mainstay of currency trading and most brokers don’t even offer it on their platforms. Those who do, have a limited number of crosses available, normally EUR-NOK and USD-NOK. Biggest brokers should also have NOK-SEK and, maybe, NOK-JPY. Any other cross is very difficult to find, but not impossible.
Importance of Krone, however, is out of proportion to Norway’s population. For a simple reason. This country is the biggest producer and exporter of energy in Europe. By this I mean both oil and natural gas. So it tends to be responsive to major price shifts in these commodities. But these are not the only drivers. Fiscal house of Norway appears to be order, with prudent policies of Norges Bank behind it. Like most currencies of smaller countries, NOK is volatile during times of turmoil, we witnessed it last year. On the flip side, it is usually very strong during periods of normal economic development.
Currently the benchmark overnight rate for the Krone is at 1.25%, which was left intact by the central bank, during its meeting last week. Bank officials hinted strongly about prospects for raising rates early next year, putting an end to a policy of monetary easing. It could be among the first in the world to do it, bringing back interest rates differential as a driving force behind currency moves- the carry trade. While this is speculative, no doubt exists that NOK has been strong recently against most currencies, including Canadian Dollar.
Daily chart is in process of building important top. Price has encountered very strong support at 5.5000 level and is currently moving up. I like this picture very much, and think that should the price breach 5.5000 again it has very good chances of falling straight to 5.3000, for a 2000 pips run. Given the fact that price is likely to rise a little before the break, as it is doing now, another sell order might be useful. In this situation 5.7000 level is not a bad place to enter short. Stop could be placed at above 5.8000. It is secondary, though, main set up is a sell under 5.5000. With any luck maybe within a week or two.
This particular cross, CAD-NOK, could be difficult to find and spread would be on the expensive side, maybe 60-70 pips. Comparing to the size of potential profit, it is not cost prohibitive, and presents good opportunity. Trade can also be done by creating synthetic CAD-NOK cross. Buying USD-CAD and selling USD-NOK at the same time gives us a net CAD-NOK short position. Direct trade, though, is always better. Without a doubt this is a longer term trade and can easily take few weeks. I’ll review it when there is something to report.
Mike K.
Thank you for posting it. These kind of currencies are of great interest to me. While on the subject, what is your view on PLN now?
I think PLN will be getting stronger. As a matter of fact, I might devote a post to it, as it looks like there is a trade coming up.
Are you a professional journalist? You write very well.
Mike, I can’t get the quote on NOK except with SEK on IB. The SEK won’t quote against anything, though it is listed. It may be that they will trade it for me but not provide the quote, just guessing. I would like to follow you on the trade, though the spreads are scary. I am not used to shooting for the big pips. However I am looking at another possible set up.
I found the gbp/jpy support level of 153.75 also significant. It has been attacked three times the last week and bounced, but not hard. It also bounced off the level a little less than a month ago. If someone attacked it three times in rapid succession, it seems likely they will again. Also the aud bounce petered out in less than 24 hours. Failed breakout seems like.
I am slow with my answer, but I really am burned out. I have been doing this full time about two years. I was picking between pouring coffee and this, and unfortunately made the unwise decision.
I never used IB, so not sure about their practices. Myself can only get access to CAD-NOK through an institutional platform, with a minimum of 500,000 units for this pair, so most likely use a synthetic on either OANDA or GFT. But CAD-NOK chart will give the signal.
Yes, GBP-JPY looks very volnurable, if it falls under 153.50, will likely go to 150.00, maybe even 147. At the moment it is more on weakness of GBP, but JPY is starting to put presure on other currencies, too. The whole complex could collapse. Feels like it just needs a catalyst.
Vlad, it can’t all be too bad. Since you have been doing it for 2 years, something must have been right. Most people are done in about 3 months, or so.
Catalyst could be when LDP gets run out of town one week from now? About a month ago, the opposition was rumbling about selling us debt denominated in yen. Read that happened under Carter. That would sent the yen on a moonshot, so probably won’t happen. Still it has been said. More likely, China just stops with the huge lending program and the risk on goes to risk off quickly. You never said why you were so bearish on the yen long term. Their enormous internal debts? But that does not affect external flows?
My calls have been right, but my timing is off and I used to put too much into reversion to mean too quickly. Did that couple of weeks ago again when the usd/jpy went vertical on the 15,000 drop in unemployment claims.
Long term I’m looking at the ridiculous debt, yes. The question of repatriation/expatriation of yen is becoming much more complex than it was until recently. Their companies are building factories abroad and avoid protectionist backlash. Let’s just say that profits remain healthy, which they aren’t, but good case scenario they make money. Good chunk of these profits will go back to Japan, turned into yen, keeping it strong, right? well, all this is happening at the expense of jobs at home. For the first time in modern history(past war) they are loosing net jobs, without positive outlook. I doubt external profits can overcome internal expenses over time.
For now it appears that Yen is used as proxy, or substitute for Yuan, and some strength comes in place of Chinese currency. I simply don’t think this can go on indefenately,
No matter what, short term can be played either way, moves are big enough.
If your calls are right on direction but, the timing isn’t, maybe all you need is to lower size and extend stops? You’d stay in a trade longer and maybe get higher winning percentage. Market conditions will change eventually and you can get more serious again.
Ok, that makes sense with the yen. Going to think on it a while. Small positions and wider stops, yea – should of had that as my screensaver.
Maybe the CAD really is the safe currency, if the situation gets too serious to use it as a trading tool.
This is just the tip of the iceberg with Japan, there is more. At any rate, there is a serious drawdown to trading big time fundamentals- they can take months or even years to fully come into play. Not everybody has resources and patience to take advantage of it. Soros does, people like me don’t. That;s why the charts.
I agree with you that currencies like CAD or AUD should be considered reserve or safe havens. However, BoC already hinted at an intervention. No target was announced yet, but parity is logical, maybe 1.0500. It is funny, though, they didn’t intervene when rate was 0.90 couple of years back. I don’t even recall any threats about intervention.
[...] being liberal here, but if the price starts going my way, S/L should get tighter. Much like the Norwegian krone trade, this must be given sufficient time also. Few weeks at least. Set ups from daily charts [...]
[...] few different time-frames. Longer term trade covered in this blog was between Canadian Dollar and Norwegian Krone, discussed about a month ago. Plan was to short it at 5.4900, targeting 5.3000, or about 2000 [...]
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